How Will Obama Propose to Tackle the Deficit?

In Washington these days, you’re nobody if you don’t have your own deficit-reduction plan. Paul Ryan has people talking about his conservative blueprint. Erskine Bowles and Alan Simpson have an establishment-centrist take. The Democratic left has its own alternative. And a bipartisan group of six senators is at work on still another approach. Pretty soon the Washington Redskins will be peddling their own five-point plan for long term fiscal solvency.

Until now, however, President Obama has hovered on the margins of the great deficit debate, mildly critiquing or praising various ideas without committing to a plan of his own. That’s about to change. In the wake of Ryan’s celebrated rollout , and with a fast approaching deadline to raise the federal debt limit concentrating minds, Obama is under pressure to explain how he proposes to prop up the nation’s finances. And so he will in a speech at George Washington University this afternoon. Details remain vague, however, and liberals in particular are nervous that the president might be prepared to sell out programs they hold dear to the GOP.

Before we get too deep into speculation, then, let’s look back at the last time Obama spoke in detail about the national debt. That was less than three months ago, in his January 26 State of the Union address. Remember “Winning the Future”? Well, debt reduction was an important theme. Obama proposed a five-year annual domestic spending freeze, cuts to a handful of specific programs, and then said this:

Now, most of the cuts and savings I’ve proposed only address annual domestic spending, which represents a little more than 12 percent of our budget. To make further progress, we have to stop pretending that cutting this kind of spending alone will be enough. It won’t.

The bipartisan fiscal commission I created last year made this crystal clear. I don’t agree with all their proposals, but they made important progress. And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it — in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes.

This means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit. The health insurance law we passed last year will slow these rising costs, which is part of the reason that nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit. Still, I’m willing to look at other ideas to bring down costs, including one that Republicans suggested last year — medical malpractice reform to rein in frivolous lawsuits.

To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations. We must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market.

And if we truly care about our deficit, we simply can’t afford a permanent extension of the tax cuts for the wealthiest 2 percent of Americans. Before we take money away from our schools or scholarships away from our students, we should ask millionaires to give up their tax break. It’s not a matter of punishing their success. It’s about promoting America’s success….

So now is the time to act. Now is the time for both sides and both houses of Congress — Democrats and Republicans — to forge a principled compromise that gets the job done. If we make the hard choices now to rein in our deficits, we can make the investments we need to win the future.

Look at the four passages bolded above. Each suggests a possible point of emphasis for Obama’s GWU speech.

1. Spending cuts: This seems an unlikely place for him to break new ground, coming after a budget deal in which Obama agreed to $38 billion in spending–and given that he’s already proposed a five-year domestic spending freeze.

2. New ideas to rein in health care costs: Also not likely; the public overwhelmingly opposes substantial cuts to Medicare and Medicaid, and Obama surely feels that he’s already made his bid to control health costs through the Affordable Care Act. Plus, one gets the sense that Obama is leaping into the debt debate on fairly short notice, and you don’t come up with some grand new idea to lower health care costs on a whim. Don’t be surprised if Obama doesn’t propose much more than malpractice reform and possibly opens the door to some new means-testing for the wealthy.

3. Social Security reform. Liberals were in a state of alarm on Tuesday over the idea that Obama might propose cuts to Social Security. Obama certainly seems ready to tinker with the program (even though the program won’t add substantially to the debt for decades). But back in January the White House was reportedly ruling out raising the retirement age, and it would be surprising to see a dramatic change tomorrow. Obama’s language suggests he’s more interested in increasing the program’s funding, possibly by collecting more in payroll taxes from the wealthy.

4. Taxes. This one you can bank on; Obama has long said that the Bush tax cuts for the wealthy aren’t affordable and should be allowed to expire. Although he agreed to a two-year extension of those tax cuts in his December budget deal with Congressional Republicans, he didn’t like it and is sure to return to the subject. Also listen for talk of tax reform, another issue Obama mentioned in his State of the Union. Like the Ryan and Simpson-Bowles plans, Obama has shown interest in a broad tax-code reform that would cancel specific breaks and loopholes and use the savings to lower rates for everyone. Many conservatives, like Ryan, say any tax reform should be revenue neutral. But Obama may invoke the name of his Senate pal–and arch-conservative Republican–Tom Coburn of Oklahoma, who’s part of that “Gang of Six” Senators working on a deal that would increase net receipts.

The problem for Obama is that real long-term deficit reduction will take more than domestic spending freeze, higher taxes on the ultra-rich, tinkering with Social Security, or malpractice reform. That suggests two possibilities for tomorrow: One is a speech long on rhetoric and symbolic gestures that doesn’t really address the problem. The other is that Obama produces some curve ball of a proposal dramatic enough to reset the deficit debate, even if it brings him real political risk. We’ll know soon enough.